I don't see the problem with off the shelf products Posted on: Mon Apr 19, 2004 10:05 pm

I don't see the problem with Armadillo using off the shelf products.

(yes this is still off the subject, but it is an interesting discussion)

First, the products already have a demand outside of space travel. Armadillo isn't going to buy enough to significantly change the demand on the products and hence affect their prices. (of course if Armadillo is successful enough that they start making thousands of rockets, everything would be different -- to their advantage).

Next, it allows flexibility. If one supplier acts up, then Armadillo simply switches to another supplier. If you read their weekly updates, you will see this does occur. And I'm under the impression that most products they buy have multiple suppliers. I do think it is interesting that the one product that only had one supplier was the highly concentrated peroxide. This did cause a problem and they simply switched to another fuel source (after first trying to find another supplier).

Finally, not everything they use is off the shelf. They are building some things themselves. And they always have the option to build more things themselves if the need arises. I don't see why they shouldn't use off the shelf products unless the products really don't do what they need them to do. To me that is the only problem.

Is this going to stop the supplier from increasing the price? No, in fact the supplier WANTS many seperate buyers as this means that they will be unaffected if Armadillo switches. As Armadillo increases production, they do gain control as their business becomes more valuable to the supplier, however the risks do increase because we can't be sure the supplier won't stop production.

Lepton wrote:

Next, it allows flexibility. If one supplier acts up, then Armadillo simply switches to another supplier.

Absoloutely. This is the answer to the problem above, have many sources of supply for the same part. I don't read their weekly updates so I'm surprised they can always switch products. I would have thought that what they're building wasn't that common. Full credit to them if they can build a rocket that can use various suppliers as sources for parts.

Lepton wrote:

And they always have the option to build more things themselves if the need arises

I thought about this before writing my last post. "If the supplier stops production or goes bankrupt then why can't they produce their own components?"

The answer is patents. I think Armadillo would get into a LOT of trouble if, after being faced by a doubling of price of a component, they decided to make it themselves.

The answer is patents. I think Armadillo would get into a LOT of trouble if, after being faced by a doubling of price of a component, they decided to make it themselves.

not if they make something that does the same thing but isn't the same device. remember that there are multiple suppliers of these components, and they all have different patents. armadillo has enough knowledge and skill on their team that there can't be much they couldn't throw together themselves using more basic components.

Please check out the weekly postings of Armadillo. I just can't see how their could be any concern. They are buying things like cables, computer boards, sensors, spark plugs. Just about everything they are buying is designed for other applications. (like the latest sensors are meant for measuring temperature on the exhaust pipes of race cars) Armadillo is of little consequence to the suppliers. They'll basically be ignored.
Would you be concerned that Ace Hardware would raise the price on steel cables just for you because they heard you were going to use them for a special project? Yes, some of the things are more specialized with a smaller market, but still not small enough for Armadillo to be concerned about.
Most of the specialized rocket stuff they are building themselves or having built for them. For instance, for their rocket engines, they have another company manufacture the nozzles and other parts, but it is basically machining work. There are machine shops all over that could do this for them. Then they put the various parts together themselves. For smaller parts (that don't take enormously expensive machining equipment) they make themselves.

I'll quit because I'm rambling now. The weekly updates are very open about any supply problems they do have, and they just don't seem that problematic (except that sometimes it slows them down (but not as much as it would trying to build everything from scratch)).

Are there any specific parts that anyone thinks they will have trouble obtaining? I don't see any. Their ship is remarkably simple.

Lepton and TerraMars are right on the money here. They're describing in very practical terms how the free market works.

I think it is interesting that you're using Porter's five forces here as the backbone of your argument. Thing is, I don't believe Armadillo wants large barriers to entry (ie, having specialized parts and patents to lock out competition.) From their behavior thus far, they want to lower barriers so more people can enjoy the thrill of space travel. Isn't this the entire point of the X-Prize? Think more along the lines of open source vs. proprietary software development. Carmack is sharing his progress with the world such that it can be easily duplicated and improved upon, not hiding it for personal gain. He's not thinking like Bill Gates, or for that matter Rutan.

Besides, consider one of the four P's of marketing - Price. Economies of scale and the cost effectiveness of commodity products have been proven time and time again. If using off the shelf parts allows Armadillo to build and fly rockets for a fraction of the price of SS1 while maintaining similar Product features, who's going to be more successful in the long run?

As for loosing control of suppliers, take a look at Automotive OEM's as an example. They use many sourced and/or commodity parts, have multiple suppliers. If a supplier goes out of business, the tooling, intellectual property, etc is transfered to another supplier. OEM's maintain firm control of suppliers, some say too much control. The "Make vs. buy" problem is not a question best answered by broad based strategic models such as Porter's 5F but instead by supply chain analysis.

The better fit is another successful business model - core compentencies. The idea is to develop certain key things which you can do better than your competitors. For everything else, buy from the leaders. Boeing doen't build their own engines, because GE, RR, or P&W can do it much better. Scaled doesn't make their own fiberglass and resins, do they? Their own microchips? Specialization is the bedrock of our global economy!

Armadillo is focusing on engines, software, and systems because these are things they believe they can do well (or at least more efficiently) than the next person. These are their value chain compentencies which they will use to create their advantage. Everything else? Find the best supplier!

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I'm not saying that Armadillo's usage of maximal off-the-shelf products is necessarily the best. There are real disadvantages - using non-aerospace grade parts have a weight penalty and may fail since they are not designed for the application. However, these are better characterized as engineering & design issues instead of supply chain management or business strategy.

I didn't respond to the last few posts because they're right. As long as you're buying extremeley standardised parts, that's sweet as, go the economies of scale, but be careful if you ever have only one supplier for something crucial to development.

j96 wrote:

Think more along the lines of open source vs. proprietary software development. Carmack is sharing his progress with the world such that it can be easily duplicated and improved upon, not hiding it for personal gain. He's not thinking like Bill Gates, or for that matter Rutan.

The open source software movement is great, very noble. But there is a reason why windows has the market share advantage over linux, and it's very little about quality. It's about corporate power and capital behind it's projects. Armadillo can have the support of many internet and space enthusiasts like those on this forum, but unless they have the credibility and finance of a Rutan-like firm, they will die. If they don't patent their products, then every unique development will be exploited by the afore-mentioned Rutan-like firm. Good on Carmack, I love free software just as much as everyone else, but I don't use it.

j96 wrote:

As for loosing control of suppliers, take a look at Automotive OEM's as an example. They use many sourced and/or commodity parts, have multiple suppliers.

This has to do with the flexible manufacturing techniques available today for common parts that have been manufactured for many years. I would question how simple it would be to switch suppliers with the complicated rocketry components I made my argument based on (remember, it seems like they're not even sourcing these parts of the shelf).

j96 wrote:

The "Make vs. buy" problem is not a question best answered by broad based strategic models such as Porter's 5F but instead by supply chain analysis.

I was using the 5F model under one scenario, supply chain analysis would be a more beneficial strategic device, but I was illustrating one point, that buying of the shelf products isn't always the best option.

j96 wrote:

The better fit is another successful business model - core compentencies. The idea is to develop certain key things which you can do better than your competitors. For everything else, buy from the leaders. Boeing doen't build their own engines, because GE, RR, or P&W can do it much better. Scaled doesn't make their own fiberglass and resins, do they? Their own microchips? Specialization is the bedrock of our global economy!

Armadillo is focusing on engines, software, and systems because these are things they believe they can do well (or at least more efficiently) than the next person. These are their value chain compentencies which they will use to create their advantage. Everything else? Find the best supplier!

Yes. I agree with this point as well. However only in areas of extremely fast technological development, such as electronics, can you retain your core competencies without protecting them from imitation by rivals.

If Armadillo are so open with their information, what's to stop me starting a company and using their technology without harboring the development cost. They will have some protection, even if it's implicit.

The emerging companies could doom themselves if they are too successful, because for the next few years at least, cost of entry form scratch will remain within the grasp of uber rich individuals.

If the industry seems strong enough, such an individual could throw an entire fortune at capturing the market. Or, say Lockheed Martin may decide that NASA isn't the biggest Cash Cow around.

Alternatively, if market estimates are to be believed, there may be room enough to support a bubble of up to fifty companies. Predicitng who will survive a burst of such a bubble seven years from now is nigh impossible to predict from our vantage. Even harder is guessing what sort of wierd start-ups will be building spacecraft or infrastructure.

I dunno, I think that any bussiness model held now, will have little effect on whether the companies live or die, as long as they don't wind up still-born.

On the second launch attempt on 14 December, the Soyuz incorrectly detected a failure of the launch vehicle at 27 minutes after an aborted launch attempt. The launch escape system activated while the vehicle was still fuelled on the pad, pulling the capsule away from the vehicle but exploding the launch vehicle and killing and injuring several people. Analysis of the failure indicated numerous problems in the escape system.

"From The Enc-astro: Quote:
On the second launch attempt on 14 December, the Soyuz incorrectly detected a failure of the launch vehicle at 27 minutes after an aborted launch attempt. The launch escape system activated while the vehicle was still fuelled on the pad, pulling the capsule away from the vehicle but exploding the launch vehicle and killing and injuring several people. Analysis of the failure indicated numerous problems in the escape system."

Without a great deal more explanation, this statement does not make a lick of sense.

A crew escape system probably wouldn't have saved the Columbia crew. There are a lot of things that might have, prior to the failure on the leading edge, but once that happened nothing could save them. In any case there has to be a reasonable limit too how much is set aside to safety. That's as much a society problem in general as a NASA problem. I like the fact that X-prize vehicles haven't got bogged down in it.

Idiom's point about the possible dangers of LES are valid. Any amount of complexity added to a design CAN increase the likelyhood of failure. It's a tradeoff, sometimes.

An escape system would not have saved the Columbia because the engineers would likely have concluded re-entry conditions were unsurviable and so designed the system for the ascent phase and the latter phases of descent. However, post-Columbia engineers have concluded from their analysis of the wreckage that a crew cabin could be designed capable of holding together until survivable conditions were reached.